The Chefs' Warehouse(US:CHEF)2023-08-02 18:35Financial Data and Key Metrics Changes - Net sales for Q2 2023 increased approximately 36.1% to $881.8 million from $648.1 million in Q2 2022, driven by an 8.1% organic sales increase and a 28% contribution from acquisitions [12][29] - Adjusted net income was $14.4 million or $0.35 per diluted share for Q2 2023, compared to $20.9 million or $0.51 per diluted share for Q2 2022 [14] - Adjusted EBITDA for Q2 2023 was $51.1 million, up from $45.3 million in the prior year [29] Business Line Data and Key Metrics Changes - Specialty sales grew 11.4% organically year-over-year, driven by unique customer growth of approximately 8.7% and placement growth of 11.9% [6] - Organic pounds in center-of-the-plate were approximately 5.9% higher than the prior year [21] - Gross profit increased 33.6% to $208.4 million for Q2 2023 compared to $156 million for Q2 2022, but gross profit margins decreased approximately 43 basis points to 23.6% [52] Market Data and Key Metrics Changes - The company experienced moderate inflation of 3.6% in Q2, with 5.7% inflation in the specialty category and 1.1% in the center-of-the-plate category [52] - The hospitality sector is recovering, but labor shortages persist, affecting service levels [89] Company Strategy and Development Direction - The company aims to leverage significant investments in infrastructure, capacity expansion, strategic acquisitions, and geographical growth to achieve a 5-year goal of $5 billion in revenue and over $300 million in adjusted EBITDA [7][24] - Focus on organic growth and operational efficiency through technology and process improvements [23] Management's Comments on Operating Environment and Future Outlook - Management noted that the second quarter returned to more normal seasonal trends, but June was impacted by air quality issues and extreme weather [20] - The company expects to see benefits from investments in capacity and infrastructure over the next 24 to 36 months, targeting a 60% growth in capacity [23][24] Other Important Information - The company completed two large acquisitions during the quarter, which contributed to higher operating expenses [28] - Total liquidity at the end of Q2 was $144.9 million, with net debt approximately $661.5 million [30] Q&A Session Summary Question: Guidance and margin cadence for the year - Management indicated that the second quarter's performance was strong, and the third quarter is expected to be more normal, with acquisitions contributing positively [32] Question: Changes in protein market dynamics - Management noted an abnormal quarter for protein sales, with expectations of high prices due to a lack of cattle in the system [36] Question: Impact of acquisitions on margins - The integration of acquired companies is expected to improve adjusted EBITDA margins over time, but initial margins may be lower due to the nature of the acquired businesses [50][110] Question: Inflation outlook for the second half of the year - Management expects continued disinflation trends, particularly in larger commodities that experienced extreme inflation in 2022 [81] Question: Recovery in the hospitality sector - The hospitality sector is recovering, but labor shortages remain a challenge, affecting service levels [89]